An interest-only home loan can make monthly mortgage payments a lot more affordable, but you won’t actually pay down your principal balance. However, you can still gain home equity if property values rise over time.
If you are looking to invest or you want to reduce your repayments, you may want to compare fixed rate interest-only home loans. Like all specified home loans, fixed rate interest-only home loans are.
Property investment is undeniably popular, so if you’re considering an interest only loan, here are some pros and cons you need to know. Property investment is undeniably popular, so if you’re considering an interest only loan, here are some pros and cons you need to know..
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Interest Only – Jumbo 5/1 ARM. Interest Only Loans allow you the flexibility of investing your money where you wish, not just in your house. During the first five years of your loan you can either pay interest only, or include whatever amount of principal you wish, even a large principal prepayment if desired.
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Additionally, the interest rate of an interest-only loan is usually higher than a conventional mortgage loan because lenders consider interest-only loans to be riskier. It is also possible for the interest rate to vary based on fluctuating market conditions if your particular loan is set up as an adjustable-rate loan .
But from year 6, after the interest only period ends and your repayments switch to principal and interest, your monthly repayments increase. Also, the total amount of interest you pay over the life of the loan will actually be higher compared to a loan with principal and interest repayments.
A home loan repayment typically consists of two parts: The principal component – the amount you borrow (your loan balance) The interest component – the amount the lender charges on your outstanding balance; With an Interest Only home loan, your minimum repayments will only cover the interest charges on your loan for an agreed period of time.